- USD/CHF gains momentum to around 0.8340 in Monday’s early European session, up 0.60% on the day.
- Optimism in US-China trade talks undermines the CHF, a safe-haven currency.
- Persistent geopolitical risks might cap the upside for the pair.
The USD/CHF pair rises to near 0.8340 during the early European session on Monday. The Swiss Franc (CHF) edges lower against the Greenback amid easing concerns of a trade war between the United States (US) and China, the world's two biggest economies.
Both China and the US have said that they've made progress at trade talks in Switzerland, weighing on the safe-haven currency like the CHF and creating a tailwind for the pair. US Treasury Secretary Scott Bessent described the discussions as "productive and constructive," while China's Vice Premier He Lifeng said trade talks with US officials is “an important first step” in stabilising bilateral trade relations.
Furthermore, the hawkish stance from the US Federal Reserve's (Fed) provides some support to the US Dollar (USD). Fed officials signalled that it is not leaning towards cutting interest rates anytime soon. Traders expect the US central bank will deliver wo additional rate reductions towards the end of the year.
On the other hand, persistent geopolitical risks could boost the safe-haven flows and help limit the CHF’s losses. India on Saturday accused Pakistan of violating a ceasefire agreement reached earlier the same day between the Directors General of Military Operations (DGMOs) of both nations. India's Foreign Secretary, Vikram Misri, said that Indian forces had been directed to give a firm response to any further ceasefire breaches along the Line of Control (LoC) and the international border.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.
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